The Circular Economy – some

(in)convenient truths and policy lessons

Prof. Arnold Tukker

Professor of Industrial Ecology

Scientific Director, CML, Leiden University / senior researcher, TNO

Chair, Leiden-Delft-Erasmus Centre for Sustainability

Simposio Internacional en Crecimiento Verde y Política Económica

(International Green Growth Symposium), Bogota, 18 and 19 July 2017

Centre

for

Sustainability

Where I come from

• Chemist by training, PhD in LCA and Policy research

• Ministry of Environment (1988-1990)

• TNO (large not for profit research organisation, 1990- now, 30% since 2013)

• Director and professor, Institute of Environmental Sciences CML, Leiden

University (90 staff, 2013-now, 70%)

– Circular economy and resource-efficiency

– Biodiversity and Natural Capital

• Chair, Leiden-Delft-Erasmus Centre for Sustainability (virtual centre across

3 universities, about 200 researchers, 2015-now)

Why circularity and green growth?

Global resource use at 7% growth

Doubles global economy every 10 years…

..10-fold every 35 years

After about

• 100 yr: an amount of energy equal to the full solar

influx on earth

• 200 yr: all water on Earth, including sea water

• 300 yr: a resource volume equal to the whole

earth crust

• 400 yr: an oil barrel the size of the earth

At 3%, these numbers roughly double

A circular economy – some (in)convenient

truths

Fact 1: Rich = high carbon, water, land and material

needs for satisfying consumption (‘footprints’)

Fact 2: After a threshold, more GDP gives not a

better Human Development Index

Fact 3: Both Europe as Asia are vulnerable with regard to

resource competition’…and LA will be too if they grow as fast!

Twitter mee via #fvdt16

• Asia

– China alone uses e.g. already 50% of steel and cement in the world

– Particularly India and Indonesia still must grow to reach Western wealth levels

• Europe

– On ALL indicators: more resources needed for consumption as we produce

– We now still make more money and can pay for it…but Asia is becoming smart

and competitive too, and fast!

Left: resources/emissions produced Right: resources/emissions needed for consumption

Carbon Water Land Materials

Key answer: doing more with less

• EU Circularity package

‘Decoupling’• Enhance quality of life

• With less growth of GDP

• With less resource use

• And minimal emissions

‘Circularity’• Prolonging product life

• Repair

• Re-use

• Remanufacturing

• Recycling

• EU Raw materials initiative

Enhance knowledge base (EIT KIC Raw materials)

Enhance normal and urban mining in Europe

2

Source: UNEP International Resources Panel

Source: Ellen MacArthur Foundation

2100

Inconvenient truth 1: there is a limit to

resource-efficiency or decoupling

Assume zero resource use growth

• 7% economic growth a year ->

7% more resource-efficient a year?

• Every 10 years: doubled economy,

hence halving resource use per Euro?

• In 100 years: transport services of

your 1000kg car must be delivered

using the materials in a Dinky toy

20502010

Inconvenient thruth 2: a growing econonmy

inevitably needs virgin materials

• Growing economies build new infrastructure….

• ….so even if materials use is now so efficient you can build TWO Eiffeltowers from the old one…

• ….if 10 cities want an Eiffeltower, you need still 5 times more, new materials

• Even with the best recyling you willhave some degradation…….

• …...so energy to upgrade

Mingming Hu, CML, 2010, steel in Beijing

!!

??

However, we must start the transition now!

Circularity may not buy us eternal growth

But it will give up to 20 times more wealth

• Circularity: 4-5 times more economic activity in

the same planetary limits

• Focus on Human Development: 4 times more

wealth with the same level of economic activity

And we have to start now

• Transitions take time

• Investments now create lock ins

• So invest in circular, green growth now!

13 June 2016

Green business models13

How to make the transition to a circularity

What is circularity?

Prolonge product life, Repair, Re-use, Remanufacture, Recycle

2Source: Ellen MacArthur Foundation

Or, differently shown:

2

Four knowledge fields

1. Environmental & economic system analysis:

– Current material flows & value added creation

– ‘Hot spots’ and scenarios for improvement

2. New, circular technologies and designs

– That reduce primary resource use

3. New, circular business models/value chains

– That support circular technologies and designs

4. New policy & governance

– Markets alone often will not deliver circularity

Central in crucial activities I am involved

– Leiden-Delft-Erasmus Centre for Sustainability

– EU PhD Training Network Circuit (15 PhDs)

Leiden-Delft-Erasmus Centre for

Sustainability

Leiden-CML, EUR

TUD

EUR-RSM, TUD-IO

TUD-TBM, UL-FGGA

EUR-FSW&DRIFT

Changes to circularity – how to measure it?

• Economic & Industrial ecology tools

LCA, Material flow analysis, Input-output

For assessing resource use hot spots…. and improvement options

• Country footprints (e.g. Exiobase MR Environmental Input Output database)

Carbon

Water

Land

Materials

• Priorities (80% of impacts)

Food -> reduce animal food

Mobility -> reduce cars, flights

Electrical appliances -> energy efficient

Housing, heating and cooling

3

Y*,A Y*,B Y*,C Y*,D q

ZA,A ZA,B ZA,C ZA,D YA,A YA,B YA,C YA,D qA

ZB,A ZB,B ZB,C ZB,D YB,A YB,B YB,C YB,D qD

ZC,A ZC,B ZC,C ZC,D YC,A YC,B YC,C YC,D qC

ZD,A ZD,B ZD,C ZD,D YD,A YD,B YD,C YD,D qD

W WA WB WC WD

g gA gB gC gD

CapitalA CB CC CD

LaborA LB LC LD

NAMEAA NAMEAB NAMEAC NAMEAD

AgricA AgricB AgricC AgricD

EnergyA EnergyB EnergyC EnergyD

MetalA MetalB MetalC MetalD

MineralA MineralB MineralC MineralD

LandA LandB LandC LandD

IndustriesP

rod

uct

sC

& L

En

vir

on

Ext

Exiobase (orange: country

Input-Output table incl. final

demand; green: trade between

countries; grey: emissions and

resource extraction by sector)

• 43 countries + 5 Rest of

continents

• 160 sectors

• 30 emissions

• 80 resources

• Water, land

• 15 types of labor, added

value

Changes to circularity – what technologies?

• Developing technologies enabling

Low impact and efficient mining

Low-impact industrial production

‘Engineering out’ critical materials

Reducing complex composition of

products and materials

Developing high-strength, low-weight

materials

Design for life time extension, re-use,

repair, remanufacturing, recycling of

products and materials

3High strength steel for lower weight cars

Changes to circularity – new business

models?

• Circular business models and

consumer behavior

Needs new business models: based

on value creation, not product sales

Needs new business competencies,

cultures, strategies

Particularly in B2C consumer

acceptance of new business models

is key

3

Light: Pay-per-lux

Cars: sharing

Copiers: pay-per-print, design for component re-use

Changes to circularity – what policies?

Economic systems are inert

‘Regime’: sunk costs and interests of

existing players in the value chain

‘Landscape’: a myriad of ‘taken for

granted’ frameworks, like free markets

and individual choice

‘Niches’ or new models often immature

Often, policy must bring change

Regulation: bans on landfill, certification

of sustainable production of e.g. coffee

Tax adjustment: from labor to resources

Room for experiments: learning how

new systems work

Policy: in my view the key challenge

3

Example: history of circularity in the Netherlands

• 1970’s – few laws and policies, no enforcement

Landfill was cheap, Illegal dumping cheapest

Investment in hazardous waste incineration not profitable

Many scandals on dumping chemical waste and ground and water pollution

1980s – waste laws, start of planning and enforcement

Quality standards for waste technologies and landfill

State support for building hazardous waste incineration (too risky for industry)

Enforcement program started and Waste plans with capacity regulation started

(ensured investments in waste management were profitable)

1990s – strategic waste programs

Identification of priority wastes (e.g. building and construction, electronics, packaging)

Targets for reduction and re-use set by government, backed by parliament

Roundtables with industry on HOW to realise these targets -> support policies per

waste stream (e.g. deposit system for cars, electronics)

General measure: high landfill tax -> stimulated recycling

Result: Netherlands is best in class in Europe in re-use and recycling – via

a mix of regulation, taxation and interactive policy

We must now make the step from good waste management to circularity

Potential for collaboration between the

Netherlands and Latin America on circularity

Applied research and business collaboration

‘Circular hotspot’ initiative of the Netherlands

Platform for Dutch businesses that excel in circularity

That aim to collaborate internationally

Recent Foro Economía Circular in Bogota with contributions from Dutch Government

and others

Dutch Embassy is very supportive in this

• Aruba and TNO’s Aruba office

Aruba wants to become a sustainable, carbon-neutral island

Dutch research organisation TNO supports this and has an office there with LATAM

nationals

Research collaboration

LATAM, China and Indonesia are priority regions for

Leiden University

Already good joint PhD programs with China and

Indonesia – stipend PhDs from LATAM very welcome!

Example – EU Marie Curie Innovative Training

Network on circularity with

• 15 PhDs

• Supervision & training – 6 international school periods

• 4 years (2016-2020)

With no less as 5 Hispanic PhDs – your future Green

Growth leaders? • Patricia Garcia-Martin (Aston/Spain), • Beatriz Pozo Arcos (Linköping/Spain), • Glenn Aguilar (Leiden/Costa Rica),• Juana Camacho Otero

(NTNU/Colombia) • Carlos Siguenza Sanchez

(Leiden/Mexico)

Conclusions – building a circular economy

Conclusions

Circularity

• Long-term must to avoid resource fights

• Must start now to avoid lock in

Clear role for business

• New technological solutions

• New business models

But policy cannot sit idle

• Always think in four areas (systems,

technology, value chains, governance)

• Develop smart policies based on bottom-up

initiatives, market adjustments, rules

Glenn AguilarPhD Candidate

Pablo SigüenzaPhD Candidate

Angélica MendozaPhD Candidate

Valentina PradoUniversity Lecturer

C. Felipe BlancoPhD Candidate

Milagros Barceló PhD Candidate

Daniel ArenasPost-doc

Sofia GomesPhD Candidate

Nadia Soudzilovskaia

Assistant Professor

Ellen CieraadUniversity Lecturer

Amie CorbiinPhD Candidate

Arnold TukkerProfessor &

director

Thanks for your attention and regards from

my staff doing LATAM-related research!

Reserve slides

..what is what CfS and I try

• My own history

– Ministry of Environment (1988-1990)

– TNO (1990-2013)

• Many different topics on innovation, policy, environment, indicators

• PhD with prof. Jacqueline Cramer, ‘98

– Leiden Univesrity, CML (2013-now)

• Leiden-Delft-Erasmus CfS on circularity

– Technology (TUD)

– Value chains (TUD-IO, EUR-RSM)

– Governance (All)

– Systemic economic & environmental analyses (UL-CML, EUR-Ec.)

– Education: Industrial Ecology, Sustainable Design, Technology, Business, and in future : Governance of Sustainability

1

15 Mio Euro in major EU projects on global economic-environmental databases, with Eurostat, UN SD, OECD, EEA

3 Mio Euro in major EU projects on sustainable consumption and business models. Member EIT KIC Raw Materials

Dozens of TNO policy studies, study on circular product policy for the Dutch EU presidency

EU funded Marie Curie Training Network, 15 PhDs, 4 Mio Euro, 2016-2020 covering most of these fields

Policy(law, governance, transitions)

Value chains(business, design, consumers)

Clean Technology

Economic andenvironmentalsystem analysis

Leiden-Delft-Erasmus for Sustainability - focus on

Education, Research and Valorisation

Focus: Research & Education Application: Knowledge & Innovation

Raw Materials

Urban Systems

Production Consumption

Chains

9

With no less as 5 Hispanic PhD students

• Patricia Garcia-Martin (Aston/Spain),

• Beatriz Pozo Arcos (Linköping/Spain),

• Glenn Aguilar (Leiden/Costa Rica),

• Juana Camacho Otero (NTNU/Colombia)

• Carlos Siguenza Sanchez (Leiden/Mexico)

• …the future Green Growth leaders for your region?

A Leiden Exemplar: Rudolph Pabus Cleveringa

• Professor of Law at Leiden University,

1927-1958

• Lecture on 26 November 1940, WWII

– The Germans planned to fire all Jewish

professors, including his mentor, promotor and

colleague prof. Eduard M. Meijers

– Cleveringa took over the class of Meijers

making a now famous protest speech

– Cleveringa was put in jail for 6 months and later

taken hostage but like Meijers survived

– US Medal of Freedom, voted ‘Greatest Leiden

University Person’

– Seen as the exemplar of ‘Preasidium libertatis’

• How Leiden University honors him

– Annual lecture & Cleveringa Chair

– Lectures by Leiden professors abroad

1

tukker@cml.leidenuniv.nl

Inconvenient thruth 3: scarcity will not drive it – on the

short term

Type of resource

% global extraction

Basis for planetary limits Required resource-efficiency gains Reference

Metal ores, industrial minerals

10% Absolute scarcity (varies by metal). Mixed

(important market failures)

EC (2010); Kleijn (2012), Graedel and van der Voet (2010).

Fossil fuels 20% CO2 emission targets: Factor 5-10 reduction for 2

oC target Factor >10

(for the 2oC goal)

IPCC (2007), Stern (2006), Meinsausen et al. (2009)

Construction minerals

40% Absolute scarcity less relevant Limited(unless energy intensive materials)

WRI (2006)

Biomass 30% Max human appropriation of net primary production. HANNP = now 30-35% of available biomass Factor 2

(with 50% more agricultural production

in 2050 means a 25% reduction of

current pressures; more if stopping

biodiversity loss requires reductions in

land, water and biomass use)

Vitusek et al. (1986), Haberl et al. (2007).

Land p.m. Available bioproductive land Erb et al. (2009), OECD/FAO (2009); Nature (2010a and b), WWF (2010)

Water p.m. Renewable supply (by region) 2030: Global 'water gap' of 40%

Hoekstra and Chapagain(2007), Water resources group / McKinsey (2009)

13 June 2016 Green business models 34

Product Service Systems: a

classification

Value

mainly in

product

content

Value

mainly in

service

content

Product-service system

Product

content (tangible)

Service content

(intangible)

Pure

Product

A: Product

oriented

B: Use

oriented

C: Result

oriented

Pure

service

+ financing and

maintenance

Car sales…. Car sharing system

Chemical management services

13 June 2016

Green business models35

Some examples that worked….

• Douwe Egberts Coffee Services

– Avoids fights on dirty kitchens

etc.

– Easy for management

– Puts DE in power node

• Chemical management services

– Incentives low use of chemicals

– ..but does not work in Germany,

where firms want to keep

control on hazards themselves

• Catering and cleaning services for

offices

DE was a coffee maker, not a machine builder

nor machine leasing company…but they

improved greatly their power in the value

chain of coffee provision

36

Some examples that saw problemsABB and ‘power by

the hour’

•Electricity efficient motors, but expensive -> result oriented service

•Sales people sold on volume, not expecting rising energy price

•Result: ABB had multi-year contracts with losses

Ahrend and office

furniture PSS

•Leasing and re-furbishing may be interesting

•‘But hey, look – we have a production plant. We went back from 3

to 2 shifts, and cannot afford ourselves going back to 1”

British Airways

outsourcing

catering

•Caterer squeezed out personnel, that went on strike

•BA could not influence this situation

•In 2007, BA had to fly for weeks without meals

Performance

contracts with the

Police

…difficult if performance quality has important intangible aspects…

…in some countries you see police agents fining pedestrians

walking through red lights by the end of month, to ‘make their target’

Complex DBFO

contract systems

…Design-Build-Finance-Operate: high transaction costs & higher

risks – if you operate a swimming pool, can you kick out annoying

youth?

Drivers for PSS – it’s the business case (or not)

BUSINESS

– Value: Co-creating user value versus market risk

• Tangible value

• Intangible value

– Costs: Minimizing system costs versus financial risk

• Use of resources

• Transaction costs

• Capital costs, risk profile, and ambiguity of the offering

– Power and dynamics: Other benefits versus investment and capability risk

• Power in the value chain / potential to capture value

• Speed of innovation, learning, and option value

• Investment in new core capabilities, cannibalisation and loss of synergies

ENVIRONMENTAL:

– Product oriented = marginal,

– Use-oriented = Factor 2,

– Function oriented = Factor X

Tukker, A (2004): Eight types of Product Services – Eight Ways to Sustainability? Business Strategy and Environment

Changes to circularity – institutional boundaries

• Governance, policy,

regulation & transitions

Production-consumption

systems are inert

‘Regime’: sunk costs, sunk

habits and relations in the value

chain

‘Landscape’: a myriad of ‘taken

for granted’ frameworks, like

free markets and individual

choice

New practices (e.g. PSS) stay

often in niches

We need concepts that can

make systems more fluid and

sustainable

3

Changes to circularity – what governance?

Governance: some key approaches

Markets (tax labor->resources)?

Price signal solve things

Legitimacy for such measures

Top-down government?

Planning possible, determined systems

Legitimacy for such measures

Bottom up actions from the Energetic

society?

EMF, WBCSD, entrepeneurs

High profile actions aimed at changing

mindsets: Dutch Urgenda

Stalemate and waiting for disaster?

3

The future we want, and the present we have

What we want

• An economy based on justice, exploiting people

nor planet

• A world where people can live in dignity

• A world where people can live in peace

Our current world

• An economic system that is not sustainable• Carbon: to a 7oC world or 80% reduction by 2050

• Water: 40% shortage by 2030

• Biodiversity: mass extinction, we use 35% of biomass

• Large difference in wealth, billions of poor

• Pressure on resources that may prompt conflicts